Wednesday, May 23, 2012

The Return Chasers

"Storm chasing" has something of a cult following in the United States.  Every year, adventurous thrill-seeking people jump into heavily armored and modified vehicles for the express purpose of attempting to experience some of the most volatile weather the world has to offer. 

I have no idea what would cause a person to “want” to get as close as possible to a violent tornado system whilst still adhering to “safety standards”. 

We see the same thing with investors who pour over 1, 3, and 5 year returns from various funds.  This type of analysis is among the worst you can possible do given the mean-regressive nature of the vast majority of funds, and also because the business of mutual funds is structured to deliver benchmark beating returns.  Investors who do this are going right precisely where its most dangerous for future returns…they are The Return Chasers, and I have no idea what would cause a person to chase the self-published returns that suffer from “adverse selection” problems either.

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